Chainalysis: Inflation pressure is accelerating the adoption of cryptocurrency in the Central and Southern African region

The blockchain research firm Chainalysis, following the release of a report on the cryptocurrency market in Central and South Asia a few days ago, has now successively published a report on the cryptocurrency adoption in Sub-Saharan Africa. The report points out that inflation issues are driving local residents to seek cryptocurrencies as a financial alternative, and the supportive regulatory frameworks in some countries are effectively making the market more transparent and legitimate.

Recap: Chainalysis: Why is India leading the world's second-largest cryptocurrency market? What are the reasons for promoting cryptocurrency adoption in Central and South Asia?

Chainalysis: Cryptocurrency Has Become an Integral Part of African Residents' Lives

Cryptocurrency Market in Sub-Saharan Africa Small in Size

Chainalysis first stated that the cryptocurrency market in Sub-Saharan Africa has long held the smallest position globally, receiving approximately $117 billion in on-chain value from July last year to June this year, accounting for about 2.3% of the total.

As shown in the chart, in terms of trading volume, North America, Western Europe, Central and South Asia, and Oceania's CSAO region have larger market sizes, while East Asia, South America, and the Middle East rank 4th to 6th.

CEXes More Popular in Sub-Saharan Africa

The study found that centralized exchanges are the most commonly used trading channel in the Central and South African region, generally accounting for more than half of the total trading volume, followed by Defi protocols, while gambling platforms and staking services seem to be less popular.

Furthermore, the data also shows that the majority in the region are retail investors, with a higher proportion of trading volumes below $1 million, indicating that the local cryptocurrency market seems to be driven by retail investors.

Nigeria: Africa's Largest Cryptocurrency Economy

Chainalysis highlighted in this report:

Despite the small market size in Central and South Africa, data indicates that cryptocurrencies have penetrated the market and become an essential part of many people's daily lives.

Nigeria serves as a strong example, ranking second in the global cryptocurrency adoption index and standing out in terms of trading volume in the region.

Moreover, Nigeria is one of the few countries among the top 50 in scale globally that saw an increase in cryptocurrency trading volume last year. With a growth rate of 9%, it ranks third.

The report speculates that due to the country's political instability, plummeting oil prices, and the COVID-19 pandemic, Nigeria has experienced severe economic recessions and a wave of unemployment. As a financial alternative, local citizens have shown increasing interest in Bitcoin and stablecoins as the value of the national currency sharply declined from June to July this year.

In addition, besides the peaks in May and November due to Luna and FTX incidents, interest in meme coins such as Dogecoin or Shiba Inu fluctuates with market trends, with active participation in related meme coin transactions.

Reason One: Inflation Pressures and Economic Instability

The report also suggests reasons for the above data, pointing out that high inflation and debt issues in Sub-Saharan Africa have forced local residents to seek cryptocurrencies as an alternative for value storage and achieving financial freedom, with Bitcoin best meeting their needs.

The chart above clearly shows significant differences in Bitcoin adoption rates across regions, with Central and South Africa and North America accounting for a larger proportion. Given that inflation rates in the region's countries generally reach alarming values of up to 20% to 30% and are still rising monthly, Ghana's inflation rate has even reached its highest level in 20 years.

However, as Bitcoin prices fell to recent lows, they are gradually shifting assets to other stablecoins, seeking other means with less volatility that can hedge against the devaluation of the local fiat currency.

Reason Two: Favorable Regulatory Framework

The report presents another reason, stating that proactive regulatory approaches in the region have eliminated much uncertainty, encouraging transactions and the use of existing and innovative digital tokens.

This includes countries like South Africa that have established cryptocurrency business licensing systems, Kenya promoting cryptocurrency asset and token issuance bills, and Nigeria implementing national blockchain policies, showing the region's governments' enthusiasm, interest, and the forthcoming vibrant developments in cryptocurrency technology.

Further details will be available in the "Geography of Cryptocurrency 2023" report by Chainalysis to be released in October.

As Cryptocurrency Adoption Rises, Educational Awareness is Imperative

Previous reports from Consensys' Web3 Global Survey also indicated that public awareness and usage of blockchain and cryptocurrencies have been gradually increasing in recent years, with a preliminary understanding of their concepts and values forming.

However, similar to the situation in Africa, despite nearly half of the respondents having traded cryptocurrencies, most do not understand the differences between centralized exchanges (CEX) and decentralized exchanges (DEX), with over half of users not having used self-custody wallets.

It is evident that the overall demand for this field is expanding, making widespread education and knowledge dissemination a top priority.